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Virginia Retirement System Announces FY 2018 Investment Returns

The Virginia Retirement System (VRS) announced on August 29 that its FY 2018 return on its investment portfolio was 7.5 percent, net of fees. VRS assumes an average annual rate of return of 7 percent, so the FY 2018 performance, by exceeding this target, will help to improve the funded status of VRS’s retirement plans. In July, VRS reported to the Joint Legislative Audit and Review Commission (JLARC) that the funded status of the state employee plan was 75.3 percent in FY 2017; the teacher plan was 72.6 percent funded; and the political subdivision plans, in aggregate, were 88 percent funded.

At the same July JLARC meeting, members discussed whether to continue to assume a 7 percent rate of return or to reduce that assumption to a more conservative estimate, and Secretary of Finance Aubrey Layne echoed this concern in an article in the Richmond Times-Dispatch, lauding the strong FY 2018 returns as “great,” but cautioning, “I think we’re taking a lot of risk in assuming 7 percent based on what the markets are doing.” GRS Retirement Consulting, which performed an actuarial audit on VRS earlier this year, reported to JLARC in July that the 7 percent assumption is “reasonable,” but suggested VRS might want to re-examine it in the future: “When next reviewing and setting the investment return assumption, VRS should give due consideration to both short‐term and long‐term investment horizons and document the weighting of each in the next experience study report. The short-term investment horizon is important to consider since a significant portion of VRS’s liability is expected to be payable in the short-term.” Reducing the assumed rate of investment return would require additional employer contributions.

VRS’s FY 2018 performance summary is available at this link. GRS Retirement Consulting’s July report to JLARC is available at this link, and VRS’s report to JLARC is available at this link.

VACo Contact: Katie Boyle

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